What Is Travel Insurance and Do I Need to Buy It?
Have you ever cut a trip short due to an unexpected illness or accident? Found yourself delayed for hours or days due to inclement weather or unexplained airline shenanigans? Or perhaps gotten more than you bargained for in a politically unstable or crime-ridden part of the world?
Even if you’ve been fortunate never to experience major problems on the road, millions of your fellow travelers have.
While there are ways to keep travel affordable, the unexpected can quickly derail your budget. Travel trouble takes myriad forms. Some are mere inconveniences. Some are costly, but not life-altering. And some are true emergencies that threaten tragedy. Travel insurance can ease the anxiety of travel interruptions by providing a financial safety net.
Travel insurance can’t prevent travel trouble, but it can address the financial impacts of many common problems. Policies are sold for single trips or defined time-frames, typically one year, with the option to renew indefinitely.
Like other forms of insurance, travel policies cover specific events up to predetermined coverage limits. Coverage limits determine policy premiums, which are paid upfront when the policy is purchased or on long-term policies’ renewal dates. Covered risks and exclusions vary significantly by policy type, insurer prerogatives, and travel preferences, but typically include:
Some of these events are more common than others. We’ll explain more about each covered event and type of coverage below.
Trip insurance is the most comprehensive form of travel insurance. Unsurprisingly, it’s also the most expensive.
Single Trip Insurance Policies
Single trip insurance policies cover discrete trips or portions of trips. It’s possible to cover the entire duration of a single vacation or business trip, from the moment you leave your house to the moment you return.
Though premiums vary significantly by coverage limits, insurer, traveler age, and other factors, trip insurance premiums for single trips typically fall between 5% and 10% of the total cost of the covered portion of the vacation. If your policy covers a one-week cruise that costs $3,000, but not the $500 round-trip airfare that gets you to the port, your policy would cost $150 to $300. With the airfare included, you’d likely pay an additional $25 to $50.
Annual Trip Insurance Policies
Annual trip insurance policies are appropriate for frequent travelers. They’re usually good for one year with the option to renew indefinitely. Premiums vary less than single trip plans, though demographic factors still play a role. Most insurers offer annual plans for single travelers and couples, with minor-age children included at no additional charge.
Annual trip insurance pricing is usually flat – you pay the same premium regardless of how much you travel. However, some insurers impose travel day minimums, effectively excluding infrequent travelers.
The upshot: these policies are often extremely cost-effective for people who live away from home for months at a time, including foreign service employees and students studying abroad. Bare-bones plans start around $100 per person, per year. More generous policies can cost upwards of $400 per person, per year.
Difference Between Single and Annual Trip Insurance Policies
Aside from obvious time-frame differences, single trip and annual trip policies usually differ in one key respect: Single trip policies have generous coverage for trip interruption and cancellation, while annual policies have limited or nonexistent trip interruption and cancellation coverage.
This is important because trip interruption and cancellation are among the most commonly invoked and financially beneficial covered events. Many insurers do offer supplemental trip interruption and cancellation policies for annual policyholders for an additional annual or per-trip fee.
Others add these covered events to high-end (and potentially costly) annual policies. Before you choose an annual policy, determine whether it’s possible to add trip interruption and cancellation coverage, and if so, how much it’ll cost.
With the trip interruption and cancellation caveat in mind, single trip and annual trip insurance policies typically include the following common covered events. Not all policies include them all, and some include events not listed here. When shopping, carefully review each plan’s inclusions.
1. Trip Cancellation
Trip cancellation coverage typically reimburses prepaid and otherwise nonrefundable travel expenses, such as airfare, hotel rooms, and rental cars, up to a predetermined coverage limit. Coverage limits can vary widely – as little as $1,000 to $1,500 on bare-bones policies and up to $5,000 or more on more generous policies. The circumstances under which your trip cancellation claim will be honored are subject to variation by insurer. However, they typically include:
2. Trip Interruption
Trip interruption coverage applies to trips cut short while in progress. The allowable circumstances vary but are comparable to those applicable to trip cancellation. In most cases, filing a trip interruption claim doesn’t preclude you from restarting your trip once the impediment has passed. Coverage limits are comparable to trip cancellation policies.
3. Change Fee Coverage
Some insurers provide separate reimbursements for policyholders who need to change their flights due to applicable trip interruption or cancellation circumstances. Change fee coverage limits usually aren’t as generous as cancellation or interruption limits, as the dollar amounts involved aren’t as great.
4. Travel Delay
Travel delay coverage is more narrowly tailored to reimburse expenses (for instance, an airport hotel room) incurred as a result of long travel delays – usually six hours or longer. In some cases, travel delay coverage also covers prepaid trip expenses, such as nonrefundable hotel rooms or rental cars. Coverage limits tend to be lower – $2,000 or less is a good benchmark. The universe of covered circumstances is also narrower, including:
5. Missed Connection
This is an even narrower type of coverage that reimburses expenses incurred due to a missed travel connection or excursion, such as a flight or cruise. Covered expenses include flight re-bookings, baggage shipping fees, and the like. Allowable circumstances include canceled or long-delayed flights, severe weather at some point along your route, and severe traffic caused by an accident or other unavoidable peril. Coverage limits are comparable to travel delay coverage.
6. Frequent Traveler Coverage
This boutique coverage provides reimbursement for carrier-imposed mile redeposit fees – the fees charged by an airline or loyalty program administrator to redeposit frequent flyer miles back into your account after you cancel a flight purchased with miles or a combination of miles and cash. These fees are usually modest, but they’re useful if your policy’s trip interruption or cancellation coverage doesn’t include frequent traveler reimbursement. Covered circumstances are usually comparable to those for trip cancellation and interruption coverage.
7. Baggage Loss and Damage
This coverage kicks in if your luggage is lost, damaged, or stolen at any point during your trip. Common claim situations include baggage misdirected by an airline, luggage stolen out of a vehicle or hotel room, and baggage left by you or a traveling companion in an area to which you’re reasonably unable to return. For damage coverage to apply, the damage has to be quantifiable at appraisal. Coverage limits can be quite generous – often $2,000 or more.
8. Baggage Delay
If your baggage is delayed for any reason by a common carrier or tour operator, you can file a baggage delay claim that reimburses you for the purchase or temporary procurement of essential items, such as toiletries, phone chargers, and essential clothing – basically, anything you’re likely to need before your bags are found. You can’t claim reimbursement for nonessential items like large electronics or jewelry. This coverage provides “reasonable reimbursement for essential items” if your baggage is delayed by “a common carrier, hotel, or tour operator” for more than 24 hours. Coverage limits are typically more modest than those for lost or damaged baggage.
9. Travel Accident Coverage
This is a crucial, less common form of coverage that provides cash payments (not reimbursement for expenses) in the event of serious, permanent injury to an insured traveler. Covered circumstances typically include death, loss of eyesight, and loss of limbs. If you have disability insurance, check with your insurer to confirm that your trip policy’s travel accident coverage won’t preclude you from filing a disability claim. Travel accident payments can be quite large in absolute terms – often $50,000 or more – but may be less generous than payments issued under disability insurance policies.
10. Emergency Medical Reimbursement
This is a reimbursement scheme that covers medical (and usually dental) procedures arising from trip-related injuries or illnesses. Like travel accident coverage, it can be quite generous – limits of $25,000 to $50,000 are not uncommon. Emergency medical reimbursement coverage is critical in countries where medical care is costly for those without adequate health insurance, including the United States.
11. Emergency Medical Transportation
This reimbursement schedule compensates covered travelers and their families for medical transportation (such as air ambulances) related to serious or fatal injuries and illnesses on a trip. In some cases, the coverage extends to transportation and repatriation of covered travelers’ remains as well. Coverage limits are often quite high – north of $100,000 is not uncommon – due to the exceedingly high cost of medical transportation in remote areas.
12. Business Equipment Coverage
For business travelers, this coverage allows for the reimbursement of expenses incurred to replace stolen, lost, or damaged business equipment with identical or less expensive models. Coverage limits vary widely by policy, but typically aren’t exceedingly generous – $1,000 to $2,000 is common. If you’re traveling with very expensive equipment, such as production-grade audiovisual equipment, it’s probably best to insure it separately. To qualify for reimbursement, damage must be quantifiable.
13. Business Equipment Rental Coverage
This coverage applies specifically to equipment rented to replace lost, damaged, stolen, and sometimes delayed business equipment. Filing a business equipment rental claim doesn’t preclude a business equipment claim, provided the original equipment is never recovered or recovered with quantifiable damage.
Like all insurance policies, travel insurance policies approach claims skeptically. Some have surprising exclusions as well – for instance, some insurers don’t provide trip cancellation or interruption coverage in the event of airline bankruptcy. Before purchasing a policy, scour its fine print for coverage exceptions and exclusions – you don’t want to find out when it’s too late to correct the mistake.
Trip insurance is by far the most common type of travel insurance. More than 90% of all travel insurance policies are trip policies. However, other policy types exist.
Though they’re more specialized and less comprehensive than trip insurance policies, they may provide more generous coverage for specific events. They’re also useful for travelers preoccupied with specific perils. For instance, medical travel insurance policies are popular among older travelers, while evacuation policies are critical for those heading to remote or dangerous locales.
Medical travel insurance policies are sometimes referred to as travel health insurance or international health insurance. They’re designed to provide reimbursement or cash payments for medical treatment and transportation expenses incurred outside the insured party’s home country, though they can also provide coverage for domestic travelers without private or government-sponsored health insurance.
Expected Cost
Like trip insurance, medical travel insurance can be purchased on a per-trip or annual basis. Per-trip travel insurance policy premiums vary by insurer, traveler age, length of trip, and other factors. However, premiums rarely exceed $20 per day. Annual premiums are more reasonable, typically starting at $75 to $100 per traveler, per year.
Coverage
Most medical travel insurance policies combine the “travel accident coverage,” “emergency medical reimbursement,” and “emergency medical transportation” coverages described above. Some stingier policies include only “emergency medical reimbursement.” Covered medical costs must be unexpected – for instance, not tied to a scheduled medical procedure. Some generous policies have additional inclusions, such as trip cancellation and interruption coverage.
Ideal Uses
Medical travel insurance policies make sense for:
Evacuation policies provide reimbursement or cash payments for urgent and emergency evacuations and repatriation journeys from anywhere in the world. In most cases, insurers coordinate evacuation and repatriation themselves, in concert with local service providers. They then pay those service providers directly. Covered travelers incur little to no out-of-pocket upfront costs that would later require reimbursement. You can also look into a medical transport membership program to ensure that you are brought all the way to your home hospital to get the best and most comfortable care.
Expected Cost
Evacuation policy costs are a touch more expensive than medical travel insurance policies. Expect to pay at least $10 to $15 per traveler, per day for single trip policies. Annual policies start at $100 per traveler, per year, though they’re significantly less expensive when bundled into supplemental travel insurance policies or tailored to exclude certain common circumstances (such as medical evacuation).
Coverage
Evacuation policies combine the “emergency medical transportation” coverage described above with coverage for evacuations related to civil unrest, natural disasters, and transportation snafus. They may also include adjacent services, such as family member notification of death or hospitalization and language translation for the covered traveler and family members. However, each policy is different, so it’s important to read the fine print before assuming a given event is covered.
Ideal Uses
Evacuation policies make sense for:
Sometimes (confusingly) known as flight travel insurance, travel accident insurance provides cash payments for serious injuries, illnesses, and death. It’s designed to ease the financial burden of costly accidents or premature death.
Expected Cost
Since travel accidents are relatively uncommon, travel accident insurance is typically quite affordable. Single trip plans can cost as little as $30 or $40 per person, per trip. Annual plans typically start at $75 to $100 per traveler, per year, and rise from there. Premiums depend on the covered traveler’s age, destinations, desired inclusions, coverage limits, and other factors.
Coverage
Travel accident insurance almost always provides cash payments for accidental death and dismemberment (AD&D), either to you or your designated beneficiaries. It can also include direct payments or reimbursement for medical evacuation, direct payments or reimbursement for certain types of emergency medical treatment, beneficiary payments for travelers killed in flight accidents (which may not be covered by traditional AD&D policies), and supplemental term life payments to family members.
Ideal Uses
Travel accident insurance policies make sense for:
Supplemental travel insurance policies comprise a broad and ill-defined area of the travel insurance world. By definition, they’re less comprehensive and generous than trip insurance policies.
Some supplemental policies cover a broad range of perils and situations, including many found in comprehensive trip insurance policies. Others are extremely specific, covering discrete eventualities like evacuation due to civil unrest or injuries related to extreme sports. Many companies, such as iNext, allow travelers to build supplemental policies on an a la carte basis, picking and choosing their desired coverages and coverage limits.
Even if you’ve shopped for other types of insurance in the past, it’s not a simple matter to choose the right type of travel insurance and then select the insurer that best fits your needs and budget. Keep these considerations in mind as you evaluate and narrow down your options:
It’s often said that money can’t buy happiness. In my experience, that’s true. Of course, that’s not to say I’d be happier without a dollar to my name – just that my bank account balance and my personal well-being don’t move in lockstep.
Perhaps money can’t buy happiness, but it absolutely can buy peace of mind. Just ask anyone who willingly pays for a home security system.
Travel insurance can’t avert catastrophe. It won’t prevent the unexpected or keep circumstances from undermining your best-laid plans. But it can provide financial redress when the worst (and the merely inconvenient) occurs. That, in turn, leaves you free to focus less on what might go wrong and more on what brought you to your destination in the first place.
On second thought: if one defines happiness as the absence of worry, maybe money well spent on travel insurance really can buy happiness.
Do you ever purchase travel insurance? Have you had any positive or negative experiences that might change your thinking in the future?
Categories: Insurance, Lifestyle, Money Management, Travel
Brian Martucci writes about frugal living, entrepreneurship, and innovative ideas. When he’s not interviewing small business owners or investigating time- and money-saving strategies for Money Crashers readers, he’s probably out exploring a new trail or sampling a novel cuisine. Find him on Twitter @Brian_Martucci.
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What Is Travel Insurance and Do I Need to Buy It?
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